Home » Legal Stuff, PG's Thoughts (such as they are), Romance » Publisher All Romance Ebooks: Closing Hits New Low In Stealing From Authors

Publisher All Romance Ebooks: Closing Hits New Low In Stealing From Authors

30 December 2016

From BlogCritics:

The ebook industry has undergone several transitions in the past few years, where authors have become increasingly victimized by e-pirates, vanity presses, and scams designed to keep writers from making money on their intellectual property. Earlier today, December 28, 2016, the industry hit a new low when longtime e-tailer All Romance E-Books (Are), LLC (with its non-romance genre partner Omni Lit) released a surprise notice to its authors and publishers. ARe’s CEO and owner, Lori James, announced that the retailer was closing its doors in three days’ time.

What makes this so terrible is not the fact that they’re closing. What makes this so terrible is how they’re doing it:

We will be unable to remit Q4 2016 commissions in full and are proposing a settlement of 10 cents on the dollar (USD) for payments received through 27 December 2016. We also request the following conditions:
1. That you consider this negotiated settlement to be “paid in full”.
2. That no further legal action be taken with regards to the above referenced commissions owed.

Wait…what?

Let’s break this down. An online retailer is closing down and cannot remit the royalties owed to authors and publishers for the entire fourth quarter of 2016. In lieu of the agreed-upon percentage of 60% of the cover price for each book sold, ARe is proposing that they pay authors TEN CENTS on the dollar of those owed royalties–for books that have already been sold and the money already collected and presumably deposited in the bank account of ARe.

. . . .

The big publishing houses will almost certainly get their money. But the small presses and self-published authors are facing a terrible decision. Do writers allow ARe to steal their royalties? Do they submit for convenience’s sake because the owners of ARe aren’t planning to pay those royalties as they are contractually and legally required to do? Or, are writers willing to stand up to this theft and pursue legal recourse, knowing full well they won’t even see that ten cents on the dollar after all is said and done?

Because let’s be for real here. It’s not like ARe’s owners aren’t paying authors because they don’t have the money for the sales. They do have it. They banked all that cash and are now trying to keep it. And by hanging the threat of filing for bankruptcy out there, the company is attempting to threaten authors into agreeing legally to let them retain that money without future legal responsibility.

And here’s the million dollar question – what did ARe and its owners actually do with all the money they collected from fourth quarter sales? They haven’t paid the authors, obviously. So where is it?

And what about the authors who prepaid for advertising in 2017? What happened to their money? Just last week, ARe sent out notices soliciting ads for 2017. As you can see from their website, advertising cost anywhere from $50 to $2000 per month.

. . . .

There is an underlying lack of legal protections for authors, their intellectual property, and their income in this country. Publishers, false agents, and retailers continue to run these long-term scams, sucking the unwary into their webs and milking them for every dime. But what makes this case stand out is the egregious bullying tone of its owner’s statement to the authors she stole from, and the utter lack of concern James and ARe display for anyone outside of their own personal interests. And sure, most of the authors whose money just vanished into the ether surrounding those multi-million dollar properties in a Big Bear Lake vacation community may be out ten bucks at most.

But that’s not the point.The point is that a retailer announced today that it was stealing the money it’s received for three months’ worth of book sales and has no intention of fulfilling its fiduciary responsibility to the authors whose intellectual property they sold. A retailer has basically committed fraud and has no evident fear of being challenged or behind held responsible legally, either on a criminal or civil level. And unfortunately, that’s probably true. They’ll get away with it, and Lori James will continue to spend part of her time at Big Bear Lake, where she will enjoy the benefits of running a company who blatantly stole from the authors whose books she sold.

Link to the rest at BlogCritics and thanks to Matthew for the tip.

PG believes this whole matter is likely to end up in bankruptcy court where they deal with this sort of situation all the time.

PG hasn’t appeared in bankruptcy court in many years and hasn’t kept up on bankruptcy law, but, generally speaking, bankruptcy judges are experienced in sorting out the kinds of problems mentioned in the OP.

Failing businesses almost always stiff or try to stiff most or all of their creditors. If the owners have diverted significant sums of money from the businesses for their personal use, bankruptcy courts can claw back money and/or assets purchased with that money for distribution to creditors.

To the best of PG’s dated bankruptcy knowledge, booksellers, distributors or publishers would not owe any special fiduciary duty to authors for royalty payments and authors would not receive priority for payments over other unsecured creditors.

The difference between secured and unsecured creditors is important in a bankruptcy. If a bankrupt entity had borrowed money to purchase real estate, the lender (a bank, for example) would have almost certainly required that the borrower grant it a security interest (mortgage) in the real estate. In a bankruptcy, with permission of the court, the bank would be entitled to foreclose on the real estate for repayment of its mortgage loan. If such a foreclosure failed to generate enough cash to pay off the loan, the bank would likely be an unsecured creditor with respect to the remaining balance of the loan, just like other unsecured creditors.

If a failing business attempts to pay one creditor or group of creditors to the detriment of others similarly situated, a bankruptcy judge can require the favored creditors to refund part or all of the money they have received. In the case of a failing publisher, if the publisher attempts to pay some authors 100% of royalties due and other authors 10% of royalties due, the authors who have received 100% can be made to repay most or all of the money they’ve received into the bankruptcy court.

In the case of ARe, if a bankruptcy proceeding is commenced, authors are unlikely to be the only unsecured creditors who are not paid. If a group of authors are paid 10% of royalties due and other unsecured creditors are paid nothing, those other unsecured creditors may ask the bankruptcy court to require the 10% authors to repay some or all of the money they’ve received. Creditor priority can raise complex issues and PG is just skimming over the top of this topic.

Usually the owners of a failing business will file a bankruptcy petition for the business. If a business is, in fact, unable to pay its creditors, the creditors may petition the bankruptcy court to place the business into bankruptcy and bring its assets under court supervision. An involuntary bankruptcy proceeding is sometimes used if creditors suspect the owners of the business have improperly siphoned money or assets out of the business.

These are general bankruptcy principles and PG is neither current on bankruptcy law or privy to any inside information regarding ARe’s collapse.

Given the way authors often support one another, PG wouldn’t be surprised if a group of authors have not already banded together to consult with competent bankruptcy counsel about ways to protect their rights and maximize their return from their books which ARe has sold or licensed. Generally speaking, unless things have changed since the last time PG walked out of bankruptcy court, counsel can often represent a group of creditors who are similarly situated in a bankruptcy proceeding.

If he has not already made himself clear, PG is not currently able to represent anyone in a bankruptcy proceeding. He likes to help mistreated authors and regrets not being able to do so in this instance.

Legal Stuff, PG's Thoughts (such as they are), Romance

49 Comments to “Publisher All Romance Ebooks: Closing Hits New Low In Stealing From Authors”

  1. IHNBAL (I have never been a lawyer) but as I recall, if they do have to go through a bankruptcy they can’t do it again for a number of years (or is that just personal and not businesses?) As in a bankruptcy here and now will keep them from hiding behind bankruptcy laws for their next little game of keeping money that isn’t theirs. (never mind opening their books might show other tricks in play.)

  2. I feel awful for the authors who are getting stiffed here. Just last month in a very long thread about going wide vs keeping books in KU, ARe was brought up as a healthy and potentially lucrative avenue. Which just goes to show…at least to me…that the owners must have known things were going south and kept very tight-lipped about it.

    It’s a shame they were going so far as to get MORE money for advertising, even knowing they would close. There’s no way they woke up one morning, said that’s it, and then sent the email.

    I hope that any group that does go into battle will share info as they can.

  3. My books are on All Romance. They owe me something like 5 bucks, so it’s not the money, but this morning I (and many other authors) noticed that the option to delete our book files from the site is now gone. I already deactivated my books but didn’t delete them, to let buyers have a chance to download them. But now I can’t delete them (assuming that clicking “delete” would actually remove the files) and I also can’t find the publisher terms of service anywhere on the site. Now I’m worried that my files and the right to sell them are going to get caught up in whatever bankruptcy or sale or whatever happens after this.

  4. I am currently heading up a group and we are speaking with an attorney to see what are options are to recoup some of what we are owed. For about 50% of us already committed to being represented by an attorney, it is not about the amount owed. It’s about the principle that ARe is stealing from us.

    Not only stealing our money, but also our digital files of our manuscripts as they have removed the ability for us (authors) to delete our manuscripts from their database (server). Our concern in this regard, is that if ARe retains our digital manuscripts, what stops them from starting up another website to sell them without our knowledge?

    There is also the issue for those authors who allowed ARe to publish their manuscripts and are being denied the return of their rights for these works.

    There is so much more going on here besides the fact that ARe could be *forced* to file bankruptcy. Will any of us (authors) see any of the money owed to us? Probably not. But, until authors (try to) make a legal stand, other companies will keep taking advantage of us.

    Hopefully, some good will come out of what we are attempting to do. If you are an author that ARe owes money to and would like to be included in our legal venture, please join this FB group and contact me.

    https://www.facebook.com/groups/212976702443743/

    • Not sure if you did this already, but did you post this in any FB groups? I know at least a couple of writers that I’m friends with who have been seriously affected by this garbage, both in royalties and ad dollars. One of them has been actively searching down in FL for any and all addys for the publisher and their attorneys.

    • Joined! Thanks, Brenda. They owe me hundreds!

  5. Some authors are published by them, but in many cases the payments are, as stated in the announcement, commissions rather than royalties. As a supplier of a good who is paid commissions on terms, you are an unsecured creditor. It’s not much different than Borders going bankrupt and stiffing the publishers who had sent them books, or a department store going under and stiffing Levis, etc. It sucks, but as the supplier of a good to a retailer, it’s a risk you take.

    • I think Dave, [not a lawyer, only a brush with law school in IP] if there is an issue of fraud, not only re authors, [but also re IRS, for instance,] there may be other legal standing for authors… And the feds.

      • I agree with the concept of fraudulent bankruptcy. What I object to is calling payments “royalties” when they are not such.

  6. I sure wish they’d change the bankruptcy laws so that authors don’t always get stiffed as unsecured creditors. PG, do you know of any case in which an attorney has argued that the “security” for the money owed the author is the IP itself?

    • Why should we treat authors as more special than the guy who caters lunch?

      • Theoretically because the author is indispensable to the existence of the business. In practice, the individual author is indispensable to the existence of the business only for the self-publishing single author publisher.

        • The distributor is also indispensable to the business as we know it.

          Author and distributor are both necessary, but neither alone is sufficient.

          We can also observe the supply is increasing at a faster rate that demand, and does so without any special bankruptcy protections.

          Should fuel providers have special protection when a trucking company fails? Fuel is indispansable to the trucking business.

    • It might be Deb that the easier path might be that authors write into their intitial contracts protection for themselves in case of a bankruptcy, such as asserting that authors’ rights will revert fully to author immediately, digital as well as print, foreign, etc. That the ‘asset’ belongs to the author and is only being contracted to be carried by pub for a term of time, dependent on that pub being/remaining solvent.

      And, I agree with you about modifcation of the law, watching serial bankruptcies of some prominent people. They appear not to have suffered, only their creditors, often small vendors with no cushion, and with no xray machine to see the manipulation of ‘assets’ by the bankruptee. Some dont realize that serial bankruptcy is a biz strategy used by some.

      • I have seen clauses with similar intent in software. The intention is to plug authors out of the battles between the titans when giant edifices fall apart. Good IP lawyers are a tremendous help.

      • @ USAF

        Some don’t realize that serial bankruptcy is a biz strategy used by some.

        A certain NYC “businessman” with orange skin and Dynel hair who recently entered politics — successfully, tres unfortunately — immediately comes to mind. 🙁

        • A certain “community organizer” with dark skin and big ears immediately comes to mind. He interfered in an orderly bankruptcy for General Motors in order to curry favor with organized labor.

          • And saved far more jobs and boosted Rust Belt economies than the orange skin guy did, or will.

            • The jobs wouldn’t have been lost. Companies emerge from bankruptcy all the time and keep going. Bankruptcy can be used for lots of things. They guy with the dark skin, Dumbo ears, and lack of business experience used it to enhance his own political prospects.

              And those Rust Belt economies? They showed their gratitude last month.

            • youre correct James F. The jobs definitely are lost either for a long period of time, or forever. Either way, devastation of families.

              Bankruptcy of various in the uppermidwest over the last many decades since the early 1960s, means massive layoffs for months with no pay. WIth no back pay, no health care. Families go down when mortgages cannot be paid. Credit cards will only carry so much. If the company decides coming out of bR means taking ops to east phillistine nation, or robotizing, or whatever will keep the lakeside property owners of the co at the mansion, massive job loss. Lived in the midst of it. Steel mills. Trades.

              |And the ‘publisher’ distribs’ going bankrupt… it can be a strategy of the weasels. Saw it. And saw it in the trades by those who employ small and midsize contractors.

              • General Motors would have restructured its debt and continued operations.

                Note the UAW’s Black Lake golf course just south of Lake Huron was saved by the bailout, not the lakeside property of the company owners.

                Also saved was the union’s $4 million townhouse a few blocks from the White House, not yhe mansions of the company’s owners.

        • James E. Brown: “Dynel hair” you truly crack me up, thanks for the genuine humor and you get the gold star for use of an anachronistic word

          • by the way PG, thanks for the lucid and down to earth facts about bankruptcy and what you do and dont know about it. Your integrity has always stood out.

  7. I have no contract with ARe, but if I did, I would reject their offer of 10¢ on the dollar, because it does not include a reversion of rights. Instead, I would counter their offer: you revert rights to me and I will forgive the debt in full (and send you a 1099 for the full amount; then you get to wrestle with the IRS).

    No one can ‘force’ anyone into filing for bankruptcy protection. If three unpaid creditors join together, they can file an involuntary bankruptcy on the debtor.

    As for improving the standing of author vis-a-vis other unsecured creditors — good luck. It is possible. You have to persuade a majority in both houses of Congress and get the President to sign it. Got money? I mean truckloads of money.

    If I had books with ARe, I would wave bye-bye to any royalties due me. All I would want is my rights back. And I would look hard at all my distributors and pull my books from the weak ones.

    You think people are crying now, wait until B&N goes under.

    BTW, wife and I are fine. Anniversary next week. We have already made plans for celebration.

    • The writers being offered the 10¢ on the dollar don’t have their rights tied up. ARe acted solely as a distributor for them. Where ARe actually published someone, the deal is rights back for a complete forgiveness of all monies owed. So ARe is ahead of you on that deal.

    • If three unpaid creditors join together, they can file an involuntary bankruptcy on the debtor.

      What authority actually places the company into bankruptcy?

      • What authority actually places the company into bankruptcy?

        In so far as the question has meaning, the same authority that does it when a debtor files: the bankruptcy court. The filing is only a device to impose orderly administration of the estate by the bankruptcy court. (You and I may have different definitions of the term ‘bankruptcy’. To me, it does not mean insolvent. It means seeking protection of law in order to administer the estate. BTW, depending on their corporate status, ARe may survive bankruptcy; that is, they may reorganize under Chapter 11. Only a Chapter 7 filing means liquidation of the estate. As for how often a corporation can file, look at the history of Continental Airlines. (An aside: I took a course in bankruptcy from a sitting judge of the Western District of Texas. I made a remark about Continental installing a revolving door in the bankruptcy court clerk’s office. He responded that Continental was out of bankruptcy. I answered that the year was not over yet.))

        IMO ARe is trying to resolve its financial problems without resort to the courts. I think that is real hard to do. It requires forbearance from ALL creditors. But if they succeed, they will stay in business.

        If ARe owes you money, my sympathies. Stop the distribution through ARe and run away. Don’t look back. Forgive the debt, write ’em a 1099, and go.

  8. For anyone who is interested, here is the writer beware Blog post about the situation, with some new facts and Around up of coverage on other websites.
    http://accrispin.blogspot.co.uk/2016/12/all-romance-ebooks-sudden-closing-many.html

  9. As someone with about 8 books with ARe, I’m more frightened of them keeping the files and selling them to a pirate site. This is a bad business all around.

    • It’s certainly a bad business for the authors involved, though the cynic in me wonders if this isnt just a stunt to avoid paying authors, they might decide to pull a Samhain, to pop up again in the New Year.
      Suffice to say that I wouldn’t be too surprised if A miraculous source of funding is found at the 11th hour To save the company.
      As for fears of piracy, couldn’t you upload your books to the pirate sites yourself You might actually get some income that way.

  10. I keep thinking I should try going wide, and then something like this happens to remind me why I haven’t done it. ARe was supposed to be stable and a good place to make sales. And now it’s gone, screwing authors out of money. Poof. Just like that.

    Of course the same thing could happen to Amazon, but if I had to lay down money on which site will stick around long after the others have entered bankruptcy court, it will be Amazon that outlasts B&N, Kobo, Smashwords, etc.

    • The argument for going wide isn’t affected by this for authors who do not trade away their rights. Stick with a distributor until he stops paying.

      • Trouble is, we don’t know when ARe stopped paying. For some writers distributed by their publishers through ARe, sales numbers seem to have tanked about two years ago — about the time ARe’s CEO pulled the plug on her CFO and denied her access to the company’s financials and everything else. I never thought too much about it because my small press decides which aggregators to use. All our books have been pulled as of yesterday, so that’s a relief. But our publisher would have to insist on an audit going back to 2014 and who knows what the result might be? We might’ve been getting stiffed that far back.

  11. Aside from all the other comments here, I wanted to point out that part of this may be a financial crime where advance payments from authors to ARe are involved.

    I’m not familiar with the details as I don’t have my books there, but aside from royalties the article implies that authors PAID UP FRONT for things like advertising.

    If ARe took these funds knowing they were about to close, this constitutes fraud and it is a financial crime. I would consider reporting it to the FBI. Assuming their was intent to defraud, it would at least make them accountable for their actions.

    I am sorry this happened to hard-working authors and hope any actions result in a better outcome for all of you.

  12. It’s been quite a few years since my Business Law course, but I seem to remember one critical point that no one has mentioned.
    The continued selling, despite not paying – or planning to pay – authors might constitute an actionable case of fraud.
    The authors need to access the original terms of contract. The rights to the books might be a part of any bankruptcy proceedings, which might not be on favorable terms to the authors.
    Frankly, the authors have 2 choices:
    – accept the money, and chalk it off to experience
    or
    – fight – that will probably require a lawyer.

    I’d suggest contacting the owner of the company, suggesting that you are willing to settle for the 10 cents on the dollar, providing you are given ALL rights back, the book is removed from the assets, and you receive information about the customers who bought your books (it will be in their database, I assure you – the company may not have anyone sophisticated enough to access that information). That last part, I’d be prepared to give up on, if necessary.

    This is one of those many situations in life where you walk away, essentially barefoot, but personally intact. Better than the scorched earth scenario (which many in both business and divorce engage in).

    • RE: Negotiated settlement (that’s what we’re talking about — 10¢ vice a dollar and take down the files and pipe some sweetened whip cream on top of this bitter pill)

      Were I in a position to negotiate a settlement with ARe, I would demand a liquidated damages clause for breach of the settlement. I would make that a deal-breaker — no liquidated damages = no settlement.

      Why?

      Well, suppose ARe does not take down my files and — after they rise like a phoenix from the ashes of their current incarnation — continues to offer my work for sale on its site. Suppose I take ’em to court for breach of contract. (That’s what a settlement is: a contract.) I win and the court enjoins them from continuing to offer my works on its site. But what about damages?

      Actuals (compensatory damages) will be hard to prove. And tedious and time-consuming and likely not worth the effort. Punitives (exemplary damages) are not available for breach of contract actions. By liquidating the damages ARe and I agree that a breach is worth $XXX,XXX.00. The court will enforce that. And it will get an attorney’s attention. The liquidated damages will pay his fee.

      I would also demand choice of law and choice of venue, but I would be willing to concede these in order to get liquidated damages. I would not budge a millimeter on liquidated damages.

      I would sweeten the liquidated damages clause with an agreed estoppel — each party is estopped from initiating, continuing, or joining a civil action against the other vis-a-vis distribution or publication of ebooks. That’s what ARe thinks it is asking for as the second item of its offer. If either party starts a suit, the other can cite the estoppel clause in a motion for summary judgment (MSJ) and the court will dismiss the action. (Judges love easy decisions that lighten their case load.) Now me being the mean SOB that I am, I would word this clause very carefully so that I am estopped only from bringing or entering into a civil action as a litigant.

      I’m not getting paid to be my mean SOB self anymore, so I’ll stop here.

      • Oh, yeah, in any negotiated settlement, vice “ARe”, write “ARe, its assigns and successors”. You’re welcome.

  13. Any ideas about us customers? Stupid me hadn’t downloaded about a thousand books that I had paid for. And a thousand is a conservative estimate of the books that I had not downloaded. When were customers told about closing? I just found out today.

    • A customer out a tone of $$$

      I was out in the woods camping and I too lost 1000 books. Just sick about it. Authors I had been following and not downloaded entire series of books.

      3 days to back up an entire library. I am furious that they were not paying authors. No clue where I will shop now as I like ePub books not in the ibooks / kendel / nook reader.
      Just stinking mad.

      I bought 15 to 20 books a month for years there. poop!

      Meg…an aggie reading in frisco

      • I too was unaware of unethical treatment of authors. I just bought some ebooks in early December and have no access to them or the rest of my library. So unfair. I just want the chance to download my library.

  14. Meg, I’m with you… Absolutely disgusted that authors have not been paid AND just back from vacation with no opportunity to download over 700 books. 4 days to download… Ridiculous!!!

    I certainly hope that something is done for authors and buyers alike.

  15. Way to late for those that don’t get a chance to download their books, but as the old saying goes ‘stuff happens’.

    It’s happened to me a couple times now, enough that my trust in companies is ‘low’. If I buy something online I download it to my computer then and there. Yes, for 999 out of 1,000 times I wasted my time, I didn’t need them before the company died/moved on, but this was your 1 in 1,000.

    All you can do is learn from it and move on.

    For the writers getting burned by them hopefully the contract they signed helps rather than hurts their chances.

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